write an essay on Indian currency
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Originally, the Reserve Bank of India Act 1934 provided for the proportional reserve system of note issue. According to this system, the Reserve Bank had to maintain not less than 40% reserves (against note issue) in gold coins, bullion, and foreign securities with the provision that gold coins and bullion were not at any time to be less than Rs. 40 crores.
According to this amendment, the Issue Department of the Reserve Bank was required to keep a minimum of Rs. 400 crores of foreign securities and Rs. 115 crores in gold coins and bullion. In November 1957, the Reserve Bank of India Act was again amended to reduce the minimum currency reserve in foreign securities. Under the second amendment, the value of overall minimum reserve to be maintained by the Reserve Bank is Rs. 200 cores, of which not less than Rs 115 crores should be kept in gold coins and bullion. Thus, the present system of issuing notes in India is based on the minimum reserve method. The chief merit of this system is that it is perfectly elastic; supply can be increased up to any limit. But, there is also the danger of over-issue and inflation under such a purely managed system.
Expansion of Indian Currency: There has been a continuous expansion of Indian Currency since independence. The main reason for this expansion is deficit financing to meet the growing needs of money supply during the planning period. Total currency is circulation (i.e., notes in circulation plus circulation of rupee coins plus circulation of small coins) has increased from Rs. 4553 crores in 1970-71 to Rs. 48601 crores in 1989-90. Of this total currency, notes in circulation increased from Rs. 4169 crores in 1970-71 to Rs. 47046 crores in 1989-90, circulation of rupee coins from Rs. 247 crores to Rs. 916 crores and circulation of small coins from Rs.137 crores to Rs. 639 crores. In 1989-90, notes accounted for 96.8%, rupee coins 1.9% and small coins 1.3% of the total currency in circulation.